Mr. Timms: Any financial implication arising from an exemption being exercised would have to be picked up from within the school's budget, and the administrative implications would have to be taken up with the LEA.

Chris Grayling: Pension fund payments do not come from the school's budget. The pension is part of a teacher's pay and conditions, but the payments are made at a future date from a central pot held by the local authority. The obligation to the teacher will have to be met from the local authority pension fund but, according to the Minister, the negotiation about terms and conditions will be between the school and the teacher. That loop does not join up.

Mr. Timms: The employer's contribution to the pension fund would have to be made by the LEA; that is correct.

Mr. Brady: We are now getting somewhere. The Minister confirms that the employer's contribution would have to be met by the LEA, but he also said that the amount of any contribution to a pension fund would be covered by pay and conditions, from which exemptions can be granted under the legislation.

Mr. Timms: I am sorry, but I missed the hon. Gentleman's question.

Mr. Brady: Local education authorities are responsible for the cost of employer's contributions to the pension fund, but pension arrangements fall under pay and conditions, which are exempted so that schools can make their own arrangements. Is there not a possibility that a school might make arrangements for the amount or terms of payment of a pension that would then become a liability that the LEA would have to meet?

Mr. Timms: I think the answer is yes. The hon. Gentleman is making a fair point. As the LEA would pay the employer's contributions, there is a potential liability for the LEA, although such liabilities are generally modest.

Mr. Brady: The generally modest liability—to use the Minister's words—could be increased by a decision made by the school and not the LEA. If the answer is yes, we are right in asserting that an open-ended commitment is being placed on the LEA.

Mr. Timms: It certainly is not an open-ended commitment. On reflection, I may be able to provide further helpful information to the Committee on the subject. If that is the case, I will do so shortly.

Chris Grayling: While the Minister is beginning to think about things again, let us develop his thinking one step further. The issue is that a school will be able to negotiate new pension arrangements with a teacher and, under the clause, the LEA will have to do anything necessary to give effect to such a determination. I question whether in law it is possible for an LEA pension fund to offer different terms to one member and not to the rest. In theory, a decision taken by one school could require an LEA to vary its pension terms for all its teachers. That is unreasonable. A decision taken in negotiation should not vary the pension arrangements for every member of staff in the LEA. That would be unacceptable, which is why we need a caveat that would allow the local authority to do its best to follow the school's instructions. If it is mandated to do whatever the school wants, the clause will not work.

Mr. Timms: The teachers' pension scheme is a national one. The hon. Gentleman's suggestion that a change for one person would mean a change to everyone's position throughout the LEA is incorrect.

Mr. Andrew Turner: May I posit a different scenario?

Mr. Timms: I would welcome a different scenario.

Mr. Turner: In a local authority that has several secondary schools, two are single-sex: more men teach at the boys' school, and more women at the girls' school. The boys' school achieves earned autonomy and introduces a new pay structure along the lines described by my hon. Friend the Member for Epsom and Ewell, with the result that men teachers earn more than women teachers employed by the same local education authority. I do not mean foundation or voluntary-aided schools, but community schools. In those circumstances, women teachers would not receive equivalent pay for equivalent work from the same employer. The employer will be required to do ''anything necessary'' to give effect to the governing body's decision, which may create difficulties under equal opportunities legislation.

Mr. Timms: The hon. Gentleman raises an interesting point. That difficulty would not arise because the school would take the decision via its powers under the provisions. I do not think that the LEA would face the problems that he envisages.

Mr. Brady: The Minister was bemused by the concentration of so much effort on the clause, but subsequent debate has proved it necessary. He has allowed the power to negotiate terms and conditions to become divorced from the connected liabilities. The governing body of an exempted school will have power to vary pay, pension provisions or performance-related pay.

The local education authority will be responsible for the employer's contribution to a pension fund. If a governing body varied pension fund terms, local education authorities would have a statutory duty to meet any extra costs. The Minister has accepted that. Although we approve of earned autonomy, and would like to see it work, clause 9 should not stand part of the Bill. Without amendment, which may come from the Government later—

Mr. Timms indicated dissent.

Mr. Brady: The Minister is shaking his head, but I hope that he will read our exchanges and reflect on what he is about to do.

I urge my colleagues, and Government Members, not to place the open-ended liability on local education authorities and to vote against clause 9 standing part of the Bill.

Clause 10

Powers of governing bodies to form or

'Subject to due remuneration for services provided having first been satisfactorily negotiated and agreed, the'.

The Chairman: With this it will be convenient to take amendment No. 60, in page 7, line 11, at end insert

'and shall ensure that the headteacher of each such maintained school, or other members of the teaching staff as nominated by the headteacher from time to time, is a director of the company'.

Mr. O'Brien: I add my welcome to you to the Chair, Mr. Griffiths, and congratulate you on allowing us to be in an unlocked Room.

I hope that the Minister will not believe that we are spending too much time exploring chapter 3. He and I go back a long way, to sharing the same college at Cambridge but, although that firm friendship exists, it will not stand in the way of my duty to scrutinise and raise serious questions. Clauses 10, 11 and 12 sit together, and by virtue of the House's procedure, we are looking at amendments on a line-by-line basis. Some comments on each amendment may cut across other clauses, but I hope that that will avoid later repetition.

Chapter 3 provides governing bodies with the power to form companies and for the Secretary of State's powers on companies. The theme that runs through the clauses is one of a distinct lack of clarity. Do the Government want the companies to have genuine freedom as is provided by the Companies Act 1995, which relates to what we were discussing under chapter 2 on earned autonomy? Like the freedom of a company to direct its own affairs, will a school with earned autonomy have charge of its own affairs, or do the Government want to go down a more prescriptive route? Clause 11 suggests that, because there is only a discretionary power, regulations would specify that the company should be registered under the 1985 Act as a company limited by guarantee. We will deal with that on a later amendment.

Several hon. Members will have found themselves, perhaps for charitable purposes, directors or members of a company limited by guarantee and will understand the nature of such a company. In effect, it cannot afford to take any risk that could incur a liability, because the guarantee is normally minimal. That is the purpose of framing it as a company limited by guarantee unless—this is one of the matters that we want to probe—the Government intend to stand behind the companies as the guarantor. That would mean that, to operate as free companies, the schools could incur serious risks or debt, not least a cyclical cash flow problem, in order not to prejudice the interests of the children in those schools that have earned autonomy. No child can afford to have his educational progress interrupted by structural mistake or difficulty.

4.30 pm

It was important for me to put matters in context, while recognising that I must be specific when speaking to amendments. Under chapter 3, local governing bodies can form companies to provide services or to own assets. It is difficult to determine whether such companies will have a genuine freedom that a normal company would enjoy under its board of directors, whereby they are accountable to their shareholders or whether the provision is intended to be a mechanism—a smokescreen, even—to allow the operation of a prescriptive and centralising regime. That is a fair question.

The Minister has been slightly méchant in wanting us to believe that the amendments do not point in the same direction. I am the first to admit that they do not. They go in several directions to probe the Government's mind. When we have explored matters, no doubt we shall find that they are not pointing in one direction, but are trying to have it all ways without accepting responsibility for so doing.

Amendment No. 21 refers to subsection (5) which covers a governing body of a maintained school that wants to exercise the power conferred on it under subsections (1) to (4) under which it forms a company to provide services or facilities

''to exercise the relevant local education authority functions''

or to make arrangements to provide such services or functions. Under the amendment, in advance of setting up that company, it would be critical—in understanding what is in the Government's mind in terms of the expectation and responsibility on the companies—for staff first to have their remuneration settled. Given our discussions on the amendments under part 2, without such a provision certain action could become an excuse.

Let us not pretend that all governing bodies will be completely on the side of the angels. One or two will no doubt look for a smart opportunity, which may not accord 100 per cent. with what we would like to believe are the Government's good intentions. It is possible that such services could be abused by those seeking to remove themselves from the restrictions, especially if the Government have not issued regulations whereby the Secretary of State has retained powers to prescribe.

I go back to the overall theme of whether the companies will be stand-alone companies that will be accountable and have genuine responsibilities. Later amendments will flush out what the companies are expected to do, either on their own or because they will be, in effect, a mouthpiece for the Secretary of State. The amendment would ensure that the remuneration of the staff of the company had first been negotiated satisfactorily and agreed. Those who would be subject to terms and conditions that had to be settled for staff of such a company might find themselves in a worse or, possibly, better position than under existing arrangements. That leads to genuine concern about the Government's intention.

I am glad to know, from what I have read in briefings, that the Minister is familiar with working in limited liability companies. He may have been a director, so he will be well aware of the responsibilities, fiduciary duties and ostensible authority that all directors must have in relation to their companies, and the ability to bind those companies in relation to all those services and functions. The critical requirement in relation to testing is whether the intention is to have a free and stand-alone company or whether the Secretary of State would have prescriptive control, which might mean very short take-up of the opportunity, because there would not be the normal corporate incentive to settle terms and conditions for staff.

On amendment No. 60, the wording ''may provide staff'' gives no indication whatever of whether it is intended that head teachers, or a teacher or member of the teaching staff nominated by the head teacher or governing body, from time to time, should be a director of the company. One need only look at the current equivalent, the learning and skills councils, on which, extraordinarily, teachers are primarily absent, although they would have some of the most important input. We therefore already have experience of a body that the Government regard as innovative, which does not involve teachers. The amendment is intended to flush out whether the Government intend teachers—who are the key to success in our children's learning environment—to have ownership of the process or whether teachers will simply regard it as the busy architecture around them, which is yet more fuss when they are trying to concentrate on raising standards and making sure that children have the best education. The Minister claims that the Government regard raising standards as the purpose behind the Bill. I am concerned, to say the least, that there is no presumption—or automatic right—that a head teacher or teacher nominated by a head teacher is expected to be a director of a company formed under the clause.

I am sure that parliamentary draftsmen would want to spend a great deal of time on accurate wording and, like all my colleagues, I am deeply grateful for the work that they do. However, the amendments are intended to raise genuine points of concern about the principles that lie behind the concept of companies, and to probe whether the Government are intent on genuinely hiving off responsibility, and whether head teachers and teaching staff will be allowed to be part of the ownership of the process so that they can help form judgments and ensure delivery of standards.